Why do Banks & Venture Lenders Want to Read Your Startup's SAFE Note & Convertible Debt Documents?

Kruze Consulting Startup Q&A Author
Vanessa Kruze
Founder, CPA

Banks & Venture Lenders want to read the fine print on your Startup’s SAFE Note & Convertible Debt Documents because if the investment is characterized as Unsecured Debt then it impacts the Lender’s underwriting of a venture debt loan.

The reason why Lenders want to know if the SAFE is debt or not is that when a Lender does not have a lien on Intellectual Property, they have to share the proceeds of the IP with unsecured creditors. This is a doomsday scenario meaning the company was not able to raise money and the Lenders are selling the assets for capital recovery. But it’s something Banks & Venture Debt firms will take into consideration when underwriting the deal.

There is no point in withholding this document in the process because the Lenders need it for their underwriting and the SAFE Note or Convertible Debt is already in place. No point in hiding the ball. :)

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